You can't fudge a solution to the 'two Australias' problem

In Australia the rich are getting richer. And the poor are also getting richer, provided they own property or can afford to pay a mortgage. Meanwhile the gap between the well-off and the less well-off is growing - while those with few or zero assets, and on low incomes or benefits, struggle. The concept of two Australians - one evidently rich, and the other struggling - has become a reality once again. Unfortunately there are few ready solutions.

The problem is much the same in other Western democracies that have had strongly performing economies over the past decade - including Britain, Canada, Ireland, New Zealand and the US. In all these nations, governments are doing relatively well while oppositions are struggling. This reflects the fact that the majority of electors have assets and take comfort in rising property values.

The modern electorate is well aware that significant increases in government spending can be funded by either taxation or borrowing. The former reduces net disposable incomes; the latter may lead to increased interest rates. Advocates of social policy change have to confront this issue if they want to have credibility in the debate. The consequences of not doing so can be quite embarrassing.

Consider the case of Nic Frances, executive director of the Brotherhood of St Laurence. He went on the ABC Radio National breakfast program on October 18 last year to advocate his organisation's case that employment should be created by government-funded schemes. However, when interviewer Vivian Schenker suggested that such a proposal could only be funded by a tax increase, Frances got into considerable trouble.

When it was put to him that the Brotherhood's proposal was that "jobs ought to be funded out of taxpayers' money", Frances couldn't offer a clear response.

Schenker then proposed that the Brotherhood's executive director was really advocating that the community had an obligation to pay for such schemes. To which Nic Frances responded: "I don't think that we have an obligation to pay for it because, clearly, I mean, I believe it would be a good obligation to have."

So there you have it - or not. The problem with a yes/no answer of this kind it that it avoids a discussion that is worth having. The fact is that government programs cost money. The issue to be addressed turns on whether they are, or can be, effective in reducing unemployment and/or relieving poverty.

The good news from the Opposition is that a number of leading Labor figures tackled this issue head-on in a series of speeches last month. First off the blocks was Lindsay Tanner, followed by Mark Latham, Kim Beazley and Wayne Swan.

Sure, there was a degree of infighting involved in the analysis. Tanner warned that "violent language and macho posturing are no substitute for vision". Meanwhile Swan said that "anger at John Howard is no substitute for understanding why he has been successful".

No names were named, but both warnings read like advice to Latham that his "muscling-up" tactics, and verbal assaults on the Prime Minister, are likely to prove counterproductive in a sceptical electorate that is interested in plausible outcomes rather than political hyperbole.

Tanner wears a left-wing guernsey in the faction-conscious ALP; Swan a right-wing kit. On social policy, however, both are proclaiming a similar view.

Tanner is concerned about "an invisible army of low-paid and casual workers who are struggling just to get by". Swan reflects on the "two Australias" concept where those at the bottom end of the socio-economic scale "cannot afford to scrape the dollars together to take their kids to the doctor".

Latham has taken a different tack. He is concerned that "Australia has a vast army of wage and salary earners who are now paying 48.5 per cent in tax". He advocates low marginal tax rates but has not said how this would be funded.

Kim Beazley, on the other hand, understands the spending implications of the war on terrorism. In order to achieve proper levels of public spending and investment, he maintains that "the Government must stop putting token tax cuts in people's pockets".

The Beazley approach is politically dangerous. But it has the benefit of being economically credible. Moreover, Beazley is capable of at least diminishing Howard's apparent ascendancy on issues of national security.

From time to time Howard, Peter Costello and Tony Abbott speak out against conspicuous largesse as it manifests itself within parts of the Australian business community. This indicates that they are conscious that, potentially, Labor can gain ground with the "two Australias" argument.

In April 2002, after his appointment as chairman of the Australia Council, David Gonski said that, when business colleagues congratulated him on the part-time position, they started "laughing". The implication was that some people in business found it amusing that anyone would do anything for $30,000. This overlooks the fact that millions of Australians get by on less each year and is indicative of an emerging social divide.

The ALP's task is to focus on growing inequality within Australian society - even as some less well-off are becoming asset rich. It is not an easy task. But it is best tackled by refusing to fudge about the need, on occasions, to tax and/or borrow to achieve social outcomes.